My Path To Financial Independence

[Editor’s Note: For your Saturday reading today we have a classic post from WCI Network partner Physician on FIRE. The original post can be read here.]

In My Story, I talked about the life circumstances that led me here, to create a blog after achieving financial independence. I didn’t give many details as to how that happened financially. I didn’t keep great track along the way, and didn’t know 10% of what I now know about personal finance, but I’ll do my best to recreate my path.

I could go back, way back to 1st grade, when I dominated the Iowa Basics. Or the glorious junior high days, when I was a star mathlete. Sadly, that’s not a typo. But what matters is that I did well in school and rocked some standardized tests. I thought I was kind of a big deal. As a senior in high school, I received numerous scholarships, but there was one in particular that led to my first step towards eventual financial independence.

Education

Choosing a college was no easy task. I had the Princeton Review guide, a few campus tours, the US News rankings, and no idea what was really important. The fact that Vanderbilt had an on campus Taco Bell and you could use your meal plan card there carried way, way more weight than it should have. But I thought that was pretty outstanding. Plus, they offered me a merit scholarship covering 75% of tuition.

I was admitted to some other top schools too, like Duke, Rice, and the University of Chicago. I hadn’t actually seen most of them, and they probably didn’t have on-campus Taco Bells, but I thought I might like to go to a Big Name school. I also got into my safety school, the good old land-grant State U, but I hadn’t given it that much consideration. Until the phone call. The call where they offered me full tuition for 4 years. Sentence fragments. I know. Maybe I should’ve gone to Duke.

Instead, I followed in the footsteps of my mother and father and his father and went to State U. I graduated in 4 years, enjoying it so much I decided to stay for 4 more, finally leaving in 2002 with an M.D. I consider my choice of college and medical school to be an important first step towards FI.

Between the scholarships, the in-state public school tuition, and a college fund set up by my grandparents, I was able to finish undergrad with money in the bank. I took out loans during medical school, lived in shabby apartments next to campus, and was able to graduate with a hefty five-figure debt. If I hadn’t had my grandparents’ help, or had gone to private school at any point, my debt would have easily been six-figures.

Investing and Compounding

My parents didn’t help pay for college; tuition, fees, room and board were already covered. They did help me financially, though. My Dad taught me the Rule of 72 when I was a kid. When I got a job in high school, they helped me open an IRA, and helped me fund it when the $4.25 an hour I earned at the grocery store wasn’t enough. They also covered the taxes for a Roth conversion when I was in a low tax bracket.

The financial help was great, but I probably benefited as much or more from the financial education aspect. Why are we opening an IRA? What is a Roth conversion, and why should we do this now? How much might this account be worth 40 years from now if it were to grow at 9% per year? Answer: 32 times as much, thank you Rule of 72 and compound interest!

I was able to save enough during my internship for a 10% down payment on a one-bedroom condo in residency. I became a homeowner, had a nice place to live, and the place appreciated in value. Hindsight being 20/20, it would have been wise to sell when I graduated in 2006, but we weren’t ready.

Frugality

I say “we” because I became engaged in 2006 as well. I bought my lovely girlfriend a ring with about 2 weeks’ worth of a resident’s salary. To this day, she still complains that the diamond is too big. It turns out I fell in love with someone who despises wasting money even more than I do, my 2nd big step towards FI.

You may have heard the term “live like a resident”. It’s a good way to jumpstart your nest egg when you get your first real Doctor job. It’s also advantageous to work like a resident to really kickstart your savings. We traveled around, and I worked as locum tenens anesthesiologist for nearly 2 years. Our housing was paid for, I got a nice daily wage and per diem, and I took very little time off. If call was available, I worked it.

In 2 years spanning 3 calendar years (July to July) I had built up a sizable SEP-IRA, and had set enough cash aside to purchase a six-figure waterfront lot with cash after taking a “permanent” job. Once again, I thought I was kind of a big deal. The kind of big deal that needs to build a half-a-million dollar house on that waterfront lot.

A Grand Waterfront Home

After a few years of every-third-night call and locum tenens work on some vacations, we were in great shape. We had 2 little boys, each with their own bedroom and 529 fund. I had been contributing the max to the SEP-IRA and I started buying mutual funds in a taxable account. I was paying down the mortgage aggressively. Life was great! Until the hospital went bankrupt!!

I returned to doing locums, took another job that ended up being more like a long-term locums, then settled into my current (and very likely final) position early in 2014, at a place where I had been a locums doc 7 years earlier.

Looks Like We Made It

We finally sold the one-bedroom condo from residency in the summer of 2014 for a small profit after having tenants renting for 7 years. In the fall of 2015, we sold the big waterfront house, for over $200,000 less than we had into it. Yeah, that stung. But ripping off that humongous band-aid made us debt-free and more importantly,financially independent.

We once again have a waterfront home on the bluffs overlooking the river. We spent a lot less on this home but it suits us very well. Having become somewhat debt averse and already paying 2 mortgages at the time we moved here, we decided to sell some funds from the taxable account and buy the home with cash, keeping my goal of being debt-free at 40 a reality.

What did I do right along the way on my path to FI? I worked hard and I saved. I did spend and lose a lot on a home, but we didn’t overspend on furniture, cars, or other big-ticket items. We’ve taken some awesome vacations, but our day-to-day living is relatively frugal. I didn’t hire a money guy / insurance salesman. I educated myself in personal finance.

I got by With A Little Help From My Friends (I prefer the Joe Cocker version, having grown up watching the The Wonder Years). Not everyone can rely on family for financial help during school. Some rough back-of-the-envelope math tells me I would have had to work an extra 4-6 months to achieve FI if I hadn’t had financial help from my parents and grandparents. I say this not to minimize what they did for me (it was huge at the time), but to dispel any notion that a silver spoon in your mouth is necessary to achieve FI at an early age.

I’ve benefitted from the Nike swoosh market from the end of my residency in July of 2006 to where we currently stand at the end 2016. Why do I call it that?

By buying on the way down and the way back up, I was able to buy more shares for my money. There have been a few short-lived corrections, but we’re in the midst of the third-longest bull market in modern history. If you are relatively young, don’t be discouraged by big drops. As long you keep investing, and the market eventually recovers, you will be better off than if it had never dropped at all.

Drinkable Dividends

My investments haven’t been speculative or fancy. I didn’t have an awesome 20-step guide to DIY investing. I initially invested with T. Rowe Price but have transitioned all of my investments to Vanguard index funds (see my portfolio here). The fees are quite low and the funds are tax efficient. The only oddball investment in the mix is a small ownership share in a local craft brewery. It represents less than 2% of my portfolio and pays dividends in beer, so I’m more than comfortable hanging onto that one.

Today, I’ve got more than 30 years worth of expenses in the nest egg, a number that qualifies me as financially independent. I’m not interested in retiring at the tender young age of 40, and I plan on continuing to build the nest egg for at least a couple more years. I also plan on beefing up the charitable Donor Advised Fund, preferably with the help of my readers, as I will be donating 50% of my site profits to charitable causes.

What do you think? Have you defined your path to financial independence? What stands in your way? Comment below!

47 comments

I hadn’t read your full story from start to finish until today. It’s neat that your life has been a series of smart financial decisions, some intentional and some unintentional. These decisions combined got you to FI at age 40. Even the small hiccups with your resident and first attending home weren’t able to derail you from achieving your goals.

Financially, if you believe in a 4% safe withdrawal rate, I could have retired before my 40th birthday based on spending of ~$75,000 a year with a paid-off home.

18 months later, I’m still working and building a comfortable safety margin, but looking to slow down to part-time this fall. I may have been financially able, but was not mentally ready to walk away from a lucrative and rewarding career.

I find it so interesting what people will do for health insurance. Have you actually checked what it costs to buy it yourself on the open market? Mine is $1185 a month for six including dental. That seems like a pretty low amount to stick with a job you didn’t want to do anyway.

Yes WCI I keep checking on health care premiums. An obamacare policy for one at age 59 for silver is about 1000/ month no dental. Trumpcare estimate was $24000 per year per individual at 64. These plans really increase with age. I am just saying to consider this before you retire I know I am. I am kidding when I refer to my 3 day work week as grueling.

I’ve been told part time physicians working at least 0.5 FTE get full benefits, but my position has yet to be approved — going through the corporate process.

I will have to plan on paying for it on my own for a couple decades between a full retirement and medicare though. Like WCI, I paid for it out of pocket for a number of years, and I’m prepared to do it again. Just have to build it into the budget, understanding that the cost increases will likely continue to outpace inflation.

4% is way too aggressive assumption. Higly unlikey we see real rates much higher than GDP growth for an extended period. Nice to be able to live on $75K – but are you really going to want to retire in Iowa? I find that thought enough to make me want to work another decade and live somewhere nice.

As for your story, it s disigenous to say ‘limited family help” – parent’s ‘topped up’ your college savings. How charming. Grandparents set up a college fund. Touching. Parents paid taxes so you could convert to a ROTH? Huh? (What self-respecting adult takes advantage of their parents like that?) Build big house on big lot and get creamed – fools and their money?

What you’ve done to gain FI is ride a very nice sequence of events – from being born into a well-to-do famiy, to a market that has done nothing but up since you starting have enough disposable income from having chosen a high-paying career. That’s your ‘secret”. Virtually any fool in your sitation would have done as well.

How generous you’re donatng 50% of profits from your blog – I’m sure those few hundred dollars to charity will make a world of difference. Smh

I’m grateful for the help I had from family. When my grandfather (a rural physician north of Iowa) passed away, college funds were set up for the grandchildren. The taxes on the Roth conversion that my parents coordinated were minimal as I was a student and had very little income.

I pointed the family help out to be fully transparent. As I stated, the cumulative effect of the gifts as compared to having zero family contributions was to help me achieve FI 4 to 6 months earlier than I would have otherwise. Not a huge difference, really, but I am thankful.

I know lots of fools with similar situations, including some who graduated from medical school debt-free, but I don’t know of many who discovered they were financially independent within a decade without even trying. It’s just a result of the way I’ve chosen to live my life, and yes, a little help.

I felt the pain of learning finances early as my parents always ‘kept’ 2/3 of my meagre earnings while still livIng at home (in Australia). At 21 yrs (1968) they surprised me with a lump sum plus earnings of what they ‘taken’ & had subsequently invested into livestock & property for my greater good. My father was an Engineer but dabbled in livestock & properties for fun & no doubt the significant tax deductions.
With that lump sum I bought my first (of many) run down ‘owner hold’ property & rented every room to cover costs while still at Univesity finishing Mech. Eng.
I paid $2400, sold it 4 years later for $4800. While visiting ‘home’ in 2012 that same property had recently sold for $AUS981,000.
Arriving in the USA (1987) I spent every cent & any free time I had on accumulating & rehabbing properties while my colleagues ‘invested’ theirs into new vehicles, vacations & failed marriages. They also laughed at my ‘blood, sweat & tears’ attempt to build equity. My wife was more patient as we lived frugally, drove older vehicles & yet lived mortgage free in the home we built.
I was able to retire at 49 (my wife still ‘enjoys’ seeing patients three 1/2 days a week). But we now hold ‘free & clear’ a significant portfolio of medium priced rentals & mixed-use commercials. Over the last 20 years many of these properties have been sold to other investors & we hold the notes at 12-16%, so the Rule of 72 has really kicked in. Just think if you buy a property for $80k, pay it off with NNN leases, then sell it for $120k & hold the note at 12-16% the rule of 72 return becomes EXPONENTIAL.
It hasn’t been easy we & we have had some tax (deductible) losses. Yet over the years we have rarley played the equities or commodities markets. However, by default we hold in our tax advataged 401K Solo’s dividend stocks that have performed well enough.

I’m amazed that an investor is willing to borrow money at 8-10% to invest in real estate. I find it almost unbelievable that one is willing to pay 16%. That must be a serious deal on the property that borrowing at 16% to pay for it makes sense.

@physician on FIRE,
Did your hospital literally enter bankruptcy? or did it quit operations? or was it bought by a larger enterprise?
If it entered bankruptcy, how did it emerge later? as a lower cost hospital?
What were the factors that lead to it’s financial failure?

After a period of dormancy, the facility was purchased by a larger health system. The hospital was never reopened, but parts of the building are in use, including the ED, imaging, and outpatient procedures.

Factors? I don’t have all the answers, but I would point to a poor payor mix, took on debt in an unnecessary expansion in the mid-2000s, amd failure to merge or sell to another health system before it was too late.

POF, your story is an inspiration to me (a fellow anesthesiologist)! Don’t think I will be able to retire at 40, but early financial independence is the goal I am aiming towards, thanks to you and WCI.

3% by 65? That’s awfully pessimistic. My father was a dentist. Never worked more than 4 days a week in his practice, and worked half-time from his mid-fifties to early sixties when he retired comfortably. Of course, he made good choices, too, and I learned from him.

40 is obviously ambitious for most Docs, because that assumes you tick all the boxes (live frugally, limit debt, preferably have a high paying specialty). But a modest retirement is possible in 10 years if desired, it simply requires a 64% savings rate (http://www.mrmoneymustache.com/wp-content/uploads/2012/01/years_to_retirement.png). Perhaps easier to accomplish for most physicians is a 15-20 year retirement plan or a 40-50% savings rate. In my specialty the average salary is usually a little north of 400k/year. I’m 31, less than 2 years out of residency, have no debt besides a home (and put 20% down), and my savings are a little north of 500k. I live an extremely comfortable life on probably 200k/year. Save about 200k/year. And probably could retire if I wanted to a lower spending level after 10 years (certainly to a 75k/year spending level, barring a market collapse), but I currently enjoy my work and plan on probably working a minimum of 15 years (part of me feels like this is part of my calling to serve others, and that it would be selfish to retire earlier even if I was able, I know this is debated, just my humble opinion). Anyway, the issue always comes down to savings rate, no matter what your salary is, although learning to live on 75k/year, while still having a >64% (like PoF) certainly is easier than learning to live on 25k, because you make a fraction of his income and have to live on that in order to maintain a 64% savings rate.

most physicians get a late start and do not enjoy those addl years of compoiunding which are so critical
does not take huge amounts of savings to create lots of wealth at 65; maybe 1k/month for 40yrs in equities

You have done a great job savings and certainly live a frugal life. I wonder how many Docs are comfortable on $75K a year in “retirement”? Our personal comfortable number is much higher , but we live in a more expensive part of the country.

You have also been very lucky “timing” the market- meaning you seriously entered the market investing as an attending in the last bear market and have enjoyed the Nike swoosh. That is sheer luck of the draw, and has worked to your benefit, others such as myself have endured two deep bear markets, which has a substantial impact on overall annualized returns.

Both Dr. Dahle and I finished residency in 2006, so we got to see what that last one felt like. I invested on the way down and back up, and it worked out well. I do feel fortunate with the market run we’ve had. I know a bear market will come along eventually, and I’d just as soon see it happen while I’m still earning a good living.

For those of you considering extreme frugality after residency so you can retire by age 50, keep this in mind – there are things you can do at age 30 to 50 you won’t be able to do or enjoy at age 70. i am 73 and in good health, but i have fond memories of experiences i had when younger that i couldn’t participate in now – climbing Kilimanjaro, scuba diving in the Galapagos, extended vacations with the kids. Would i have a larger portfolio if i had taken the money for these and similar indulgences and put it an index fund ? Sure. Would i be happier? i doubt it. This is not an argument against being frugal, just a reminder that there are trade offs. You can’t buy back your youth no matter the size of your retirement nest egg.

In general, I agree, although the time / youth argument is one of the main arguments for reducing or eliminating paid work by age 50.

It’s much easier to see the world when you’re not tied down to a job or school schedule, and you can more fully explore far flung places when you’ve got more than a week or two at a time.

In terms of frugality, it’s all relative. I know the finger isn’t necessarily pointed at me, but in terms of lifestyle, we live like Dr. B (in terms of the 4 physicians) who have an annual budget of $120,000. Because we own our homes and vehicles, we spend about 40% less than that.

We just got back from a nine-day trip to Paris and Reykjavik with our young boys and would have loved to have stayed for ninety days. Financial freedom will allow us to do that soon enough.

Very nice post POF! As WCI would say “many roads to Dublin”. I find it quite interesting that we all find similar themes in our lives at end up “home”. You picked a good wife with similar values which is huge (Stahley’s Millionare’s Mind). You lived like a resident and did not allow lifestyle creep to get into path to success. Kudos!
You learned to invest independently and switched to low-cost investing early. I started investing in 1995 with Vanguard as a PGY-1. After 22 years, it’s really amazing that we can enjoy the “Nike swoosh” of compound investing. Reaching FI is a great accomplishment. Your story is inspiring and illustrates how simple it really is. I remind myself and teach my kids that not all children (or people) can delay gratification and hold back on that marshmallow.

So you’ve been invested through two of the three worst downswings in the last 100 years. As long as you are adding to the kitty and behaving rationally (i.e. don’t sell low), you can come out on top. A sale on stocks isn’t always such a bad thing, as long as they rebound eventually. It hurts more if you’ve just retired, so it’s best to plan for such a contingency.

retiring early-health ins. premiums are quite hefty-I was paying 2k/month a few years ago

4-5 million for most plus ss will be more than sufficient as expenses in retirement are considerably less, especially if you move to florida and/or states with zero income taxes and lower cost of living

PoF, great story. Especially the part about having a like minded spouse as part of the key to reaching FI. My engagement ring was $1,000. The other day, a patient acquaintance of mine (I guess I must’ve have shown her the ring I wanted – a rather large ring) and she sorta balked when she saw the diamond band I wear today. I quickly replied – we want to retire early :).

I spent nearly twice that on the ring I bought her. Maybe the diamond really is too big! I also spent a few hundred on my white gold band, which had a “hammered” finish. Now, it’s all been worn smooth and I’ve got a backup that looks just as good that cost $6 on eBay.

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